Automakers tool up for tough markets

ByEdward Girardet, Special to The Christian Science MonitorJanuary 15, 1980

Paris
— Just over 16 months ago, France's Peugeot-Citroen Automobile Corporation took over the ailing Chrysler Europe group, becoming the world's fifth-largest car producer. Threatened by stiff competition from such giants as America's General Motors and Japan's Toyota, the French manufacturers felt the merger would not only give them a wider spread of models but also improve penetration of foreign markets.

Commenting on the much-publicized takeover, economic analysts at the Hudson Research Europe Ltd., in Paris, had forecast a number of similar defensive mergers over the next dozen years. "This in only the beginning of major mutation of the West European car industry," one observer noted. "There is probably room ultimately for only two large European manufacturers, plus a host of smaller ones."

Sure enough, only four months later, France's second- largest but strongly ambitious Regie Renault Automobile Corporation reacted. The nationalized French firm signed an agreement with the American Motors Corporation giving it direct access to strategically important outlets in North America. In return, Renault would distribute AMC's new Jeep is South America and France.

The new agreement, which became effective at the beginning of this year, will permit Renault to establish a foothold in Northern Europe. Without actually going so far as full integration of industrial operations with the Swedes, Renault hopes eventually to increase its participation to 15 or 20 percent.

For its part, Volvo hopes to construct a more energy-efficient "European class" touring car by sharing technological research with the French. It will also have access to muchneeded funds through a 10 percent capital option on Renault Acceptance, a Dutch-based international credit group.

Such developments toward a more aggressive global expansion and market effectiveness indicate French eagerness to construct an innovatively solid, technological base that can hold its own against strong foreign competition during the 1980s.

The reasoning behind this is not just purely economic. It is also highly political. France simply cannot afford to lose out in the international automobile market without throwing the country into complete turmoil.

The French auto industry affects one-tenth of the country's 22 million-strong work force, ranging from assembly line welders to driving school instructors. Its reputation as the pillar of the French economy has given birth to the expression the "if the car industry goes well, all goes well."

Although France was not a top economic performer in 1979, with its sluggish 3 percent growth rate, the auto industry has had its best year ever. "We have beaten all past records in the 75-year-old history of our national car industry, " said Marc Quin, vice-president of the Chamber of Commerce for Automobile Manufacturers in Paris.

In 1979, French manufacturers sold more than 2 million cars at home and 1.7 million abroad. This represents a 2.4 percent increase over the previous year. In addition, the carmaker group does not expect a slowdown in production in the years to come. It confidently forecasts an overall 12.5 percent expansion of the industry by 1985.

"WE are extremely concerned by the difficulties faced by American car manufacturers, because US trends, whether good or bad, always tend to cross the Atlantic and hit us later," Mr. Ouin said.

Like every other industrialized country in the West, France is also painfully conscious of the effects that spiraling crude oil prices may have on its economy. French oil prices have already doubled in the past two years. Prices have reached more than $3 a gallon at the pumps, making France the second-most-expensive country for buying gasoline in Western Europe, after Italy. "But for the moment we are still doing very well, and I don't see any reason why we should be too pessimistic in the years to come," Mr. Ouin added.

Despite the unlikely possibility that the French economy can repeat the more healthy 5.6 percent annual growth rates of the 1960s and early '70s in present circumstances, car manufacturers do not feel that austerity measures will restrain automobile purchases at home.

"The Frenchman considers the owning of a car as one of his highest priorities ," Mr. Ouin said. "But even with skyrocketing prices, he is not showing any sign of kicking the driving habit." Exorbitant crude oil prices have only succeeded in restraining the average number of kilometers traveled by car. They do not seem to affect automobile interest."

Automobile demand abroad is also likely to increase by an average of 3 percent a year over the next five years, and the French are keen on biting harder into this part of the market.

Renault, which is worth over 57 billion francs ($14.2 billion), now has assembly plants in 27 countries, 33 affiliates, and over 7,000 sales centers throughout the world.

In the process of expanding its factories in Portugal, Renault is treading carefully over its re-entry into the North American market. With presently limited sales of the "Le Car" Renault 5, the company recalls with bitter regret its Waterloo in the early 1960s, when it tried to market the drawfish Dauphine, with Volkswagen as Renault's only serious small-car competitor.

Unlike VW, Renault failed to establish a network of sparesparts suppliers and despite exultant sales at the beginning, the Dauphine operation failed dismally. Renault plans to move into the North American market gradually and hopes to sell 200,000 cars a year by 1985.